How to Make the Most of Your HSA

For some people a Heath Savings Account, or HSA, is a great way to take control of medical expenses. You (and sometimes your employer) deposit money into your account every month, and those funds are used to pay your expenses in cooperation with a higher deductible than an HMO or PPO. When used to pay for qualified medical expenses, the money deposited in your HSA is also tax-free.

An HSA, not to be confused with a Flexible Spending Account or FSA, allows any unused money at the end of the year to be rolled over into the following year. You don’t lose it if you don’t use it so there’s no real rush, like with an FSA, to spend your HSA funds by a specific date.

An HSA has specific guidelines for what you can spend your funds on. Qualified medical expenses like doctor’s visits and prescriptions are the most obvious use for your HSA, but did you know that the guidelines allow for other, more unconventional ways of using your HSA? Here are three examples of totally acceptable, but unconventional ways of spending your HSA.

Needles in Your Skin and Kneading Muscles

Let’s say your neck has been, well, a pain in the neck. You visit your doctor and they tell you that a therapeutic massage on a semi-regular basis might help. According to Aetna, a qualified medical expense is defined as an “amount paid for the diagnosis, cure, mitigation, treatment or prevention of disease, and for treatments affecting any part or function of the body”. In short, if it helps you treat what’s wrong or helps you get better, it’s a qualified medical expense.

Your doctor, in his or her infinite wisdom, prescribed a massage for your neck pain. It’s covered. That’s right. You and your neck get treated to a relaxing and therapeutic session that hopefully leaves you feeling rejuvenated.

Just like massage is covered, so is acupuncture. It’s another example of a qualified medical expense. If your doctor prescribes it, whether it’s needles in your skin or a masseuse working the knotted muscles underneath, it’s covered as part of your HSA.

Home Improvements

If you or a loved one have medical issues that require home modifications, it qualifies as a medical expense. A home modification can be as small as a handle for your bath or shower, or something as big as remodeling your hall and doorways to accommodate a wheelchair.

When it comes to quality of life and mobility in and around the home, your HSA is a great tool. It gives you the ability to spend the money you already have set aside to go toward a specific use. Those specific uses might not be as obvious as a doctor’s visit or prescriptions, but when a change in mobility means some serious renovations to your home, your HSA is at the ready.

What your HSA cannot be used for, however, is the addition of a second floor media room with a 72-inch 4k big screen. Granted, it might improve your emotional wellbeing, but in order for renovations to count as a qualified expense, they have to be done to help in any physical or medical issues.

Investments? Yep. Investments.

So here’s the great thing about your HSA, maybe the greatest thing: You can use it to make money. Imagine this, you’ve reached the end of the year and you have a balance in your HSA. The kids didn’t break any bones, and your spouse and you stayed healthy. Your medical expenses were minimal, and because you paid into your account every pay period, you’ve got a contribution excess.

Break out the champagne and caviar! Right? Not so fast. You have money left over, but that doesn’t mean you can just walk up to a bank and hold out your hand. Since you paid into your account tax-free, there are tax penalties to pulling those funds out before you’re 65. Penalties to the tune of 20%. Yep, to pull any money out of your HSA for non-medical purchases, you’ll have to pay the IRS 20%. Even after the age of 65, the money you withdraw from your HSA is taxed as income.

Rolling your HSA excess into an investment account gives money the chance to grow over time. Depending on the health of the market (and on the investment plan you choose), your IRA will earn compound interest. That way, when you’re ready to start drawing on your investment, you’ll have more money to pull out than what you put in.

Of course, you always have the option to keep your money in your HSA, rolling excess contributions over year after year. Assuming you contribute a surplus every year, your HSA will grow, earning interest. What’s more, keeping your money in an HSA gives you the option of paying for approved medical expenses tax-free, just as it does now. And, as much as we hate to admit it, our need for medical care increases as we age. Rolling your excess over year after year means your HSA grows, as long as you or your family can stay healthy.

Whether you keep your money in your HSA or roll it over into an investment account, you should consider a few things. No matter what kind of investment account you roll your HSA into, you’ll be taxed. An HSA is only truly tax free if you use it to pay medical expenses, whether it’s the year you pay into your HSA or years from now when you draw from your HSA.

At the same time, if you deposit your HSA surplus into an investment account, you’ll be taxed depending on the account. The tax implications of each investment account are still the same, which means your medical expense exemptions don’t apply.

That said, the market fluctuates, accidents happen, you may need your money sooner rather than later. It’s a lot to consider. So, as with any major financial decision, consult a qualified financial planner for the options that best meet your individual needs.

Keep Those Receipts

For any qualifying medical expenses, including the ones mentioned here, you have to be able to prove they’re prescribed and medically necessary. That means you’ll have to stay on top of keeping your receipts and insurance paperwork for any qualifying purchase you make.

A lot of HSAs offer a debit card with their plans. Heads-up HSA users, it’s a handy tool. First, it serves as a reminder that the card, which may or may not look like your other debit cards, is only for your health expenses. Take the time to label the card yourself. A card with a label that says, “HSA CARD, QUALIFYING PURCHASES ONLY,” would definitely give anyone pause before swiping away.

If there’s even a question about your HSA covering the money you’re about to use on that card, use another method of payment. Better safe than sorry. You can always call your HSA provider and confirm the coverage of any purchase.

Second, as a debit card, it tracks every payment you make, just like the debit card from your bank. Your HSA card’s account summary page is a convenient account of the money you spend and the balance you have left.

Above all, keep your receipts and insurance paperwork from year to year for all your HSA purchases. If you ever get audited, and you can’t prove that something you bought is a qualifying medical purchase, you can face stiff fines and possibly jail time for insurance fraud.

Those are just a few unconventional, but very useful things your HSA covers. A massage might not be the first thing you think of when it comes to insurance coverage, but with a little homework and a solid understanding of qualified medical expenditures are, you can put your HSA to use in ways you might have never considered before.

How do you use your HSA? Let us know in the comments below.

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